Question: The risk model from the chapter can be restated as follows: [ mathrm{DR}=frac{mathrm{AR}}{(mathrm{IR} times mathrm{CR})} ] where (quad mathrm{DR}=) detection risk (mathrm{IR}=) inherent risk (mathrm{AR}=)
The risk model from the chapter can be restated as follows:
\[ \mathrm{DR}=\frac{\mathrm{AR}}{(\mathrm{IR} \times \mathrm{CR})} \]
where \(\quad \mathrm{DR}=\) detection risk
\(\mathrm{IR}=\) inherent risk
\(\mathrm{AR}=\) audit risk
\(C R=\) control riskĀ
This representation illustrates that an increase in either inherent risk or control risk or a decrease in audit risk will decrease detection risk (all else being equal). Using the definitions of the risks, how do you explain this result? How does an increase in either of two types of risk (IR or CR) decrease another type of risk (DR)?
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